Over the last decade, there has been a notable increase in the number of women on boards and in executive officer positions across Canadian issuers. This progress is reflected in the Canadian Securities Administrators’ (CSA) annual review of the corporate governance disclosures of publicly listed companies. Most notably, the number of women occupying board seats of TSX-listed and other non-venture issuers rose from 11% in 2015 to 27% in 2023. In response to this evolving landscape, last April, the CSA published proposed amendments to Form 58-101F1 – Corporate Governance Disclosure (Form 58-101F1) and National Policy 58-201 – Corporate Governance Guidelines (NP 58-201) (collectively referred to as the Proposed Amendments). The Proposed Amendments seek to enhance the existing corporate governance disclosure requirements for non-venture issuers pertaining to the director nomination process, board renewal, and diversity beyond gender. We summarize the key trends identified in the CSA’s most recent annual review, CSA Multilateral Staff Notice 58-316 – Review of Disclosure Regarding Women on Boards and in Executive Officer Positions (the Annual Review), and outline what to expect under the Proposed Amendments. We conclude by highlighting that the Proposed Amendments align with the expectations of many Canadian stakeholders, including those of prominent proxy advisory firms, which have increasingly advocated for enhanced diversity on boards.

1. CSA’s Annual Review

Form 58-101F1 requires that non-venture issuers annually report on their corporate governance practices, including the gender composition of their boards and executive teams. The Annual Review, which was released in October 2023, identifies key trends from the disclosures of 602 issuers that had year-ends between December 31, 2022 and March 31, 2023 regarding women on boards and in executive officer positions.

  • Board representation: the overall percentage of board seats held by women increased to 27% in 2023, up from 11% in 2015. This increase occurred across issuers of all sizes.
  • Executive officer representation: the representation of women in executive leadership positions also grew, with 71% of issuers having at least one woman holding an executive officer position, compared to 60% in 2015.
  • Board vacancies: 43% of vacated board seats were filled by women in 2023, an increase from 26% in 2017.
  • Issuers with at least one woman on their board: the large majority of issuers (89%) have at least one woman on their board, in contrast to 49% in 2015.
  • Adoption of gender-related policies: 64% of issuers have adopted a policy relating to the identification and nomination of female directors, compared to only 15% in 2015. Issuers that adopted a policy had a higher average number of board seats held by women (30%) than those without a policy (19%).
  • Adoption of gender-related targets: 43% of issuers have set targets for the representation of women on their boards, compared to only 7% in 2015. Issuers that adopted targets reported that women occupy an average of 32% of board seats, in contrast to 22% for issuers without targets.

Despite the above achievements, the Annual Review also highlighted challenges in achieving gender parity:

  • While there has been progress in increasing the representation of women on boards and in executive officer positions, the pace of change remains gradual. The number of women on Canadian boards has only increased by an average of 2% annually since the Annual Review’s inception in 2015.
  • The number of women in executive leadership positions has remained notably low. The number of issuers led by a female chief executive officer has stagnated at 5% since 2020, while the number of women in chief financial officer positions decreased by 2% from 19% in 2022 to 17% in 2023.
  • There remain disparities in the representation of women across industries. Certain industries, such as mining, biotechnology and financial services had the lowest percentage of issuers with one or more women on their boards. In contrast, manufacturing, retail and utilities had the highest percentage of issuers with one or more women on their boards.

2. The Proposed Amendments

Form 58-101F1

The Proposed Amendments introduce two versions of an amended Form 58-101F1. Both versions are designed to increase transparency with respect to board and executive-level diversity, while preserving the existing disclosure requirements concerning women on boards and in executive officer positions:

  • Form A would require that issuers disclose their approach to board and executive officer diversity but does not specify which groups or categories of diversity must be included in the disclosures (other than women). Form A also does not prescribe the format that the disclosures must take. As such, the approach taken under Form A is broad and flexible, allowing issuers to design diversity-related practices and policies around their specific industries and circumstances.
  • Form B takes a more prescriptive approach, requiring that issuers disclose their diversity objectives and progress according to the following five “designated groups”: women, Indigenous peoples, racialized persons, persons with disabilities, and LGBTQ2SI+ individuals. The diversity data under Form B would be based on voluntary self-disclosure by directors and executive officers. Issuers would also be able to broaden their diversity policies to capture other groups in addition to the foregoing designated groups. To ensure consistency and comparability among issuers, the data would need to be presented in a standardized tabular format. Form B aligns more closely with the approach taken by the Canada Business Corporations Act (CBCA) for federally incorporated public companies (see our previous blog post on the related CBCA disclosure requirements).

NP 58-201

The amendments to NP 58-201 aim to improve the existing guidelines for all issuers regarding board nominations and introduce new guidance on issues relating to board renewal and diversity. The amendments to NP 58-201 would specifically address the following:

  • The responsibilities of the nominating committee;
  • The adoption of a written policy for the director nomination process;
  • The use of a board composition matrix;
  • Effective succession planning and board renewal processes, including term limits;
  • The adoption of a written diversity policy; and
  • Establishing targets for achieving diversity on the board and in executive officer positions.

3. Proxy advisory firms’ voting guidelines regarding board diversity

In line with the above developments, diversity continues to be a prominent corporate governance issue in Canada. The current proxy voting guidelines from Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis), two of the most influential proxy advisory firms in North America, both generally recommend that women should comprise at least 30% of boards of Canadian large capitalization companies.

  • Glass Lewis generally recommends voting against or to withhold votes for the chair of the nominating committee of companies listed on the TSX if the given company’s board is comprised of less than 30% of directors who are “gender diverse”, and generally advises voting against a board’s entire nominating committee if it does not have any gender diverse directors. For issuers on junior exchanges, Glass Lewis requires one gender diverse director on the board to avoid a negative recommendation. Glass Lewis may also refrain from a negative recommendation if the issuer has a sufficient rationale or plan to address the lack of diversity, which for the 2024 proxy season should include a timeline when the board intends to appoint additional gender diverse directors.
  • ISS similarly generally recommends voting against or withhold for the chair of the nominating committee (or its equivalent) at S&P/TSX Composite Index companies if women comprise less than 30% of the board of directors. ISS will make exceptions, however, for companies that are new to the S&P/TSX Composite Index and that were not previously subject to such a requirement, or for companies that have fallen below the required threshold due to an “extraordinary circumstance”. For such exceptions to be made, the companies must have publicly disclosed a written commitment to achieve at least 30% women on the board by their subsequent annual general meeting (AGM). For TSX companies that are not part of the S&P/TSX Composite Index and that have five or more directors, ISS will generally vote withhold for the chair of the nominating committee (or its equivalent) if there are no women directors.

New for 2024, ISS has expanded its voting guidelines to require that companies on the S&P/TSX Composite Index have “racially or ethnically diverse members” on their boards. ISS defines racial and/or ethnic diversity as Aboriginal peoples and members of visible minorities. In particular, ISS will generally vote against or withhold in respect of the chair of the nominating committee (or its equivalent) if the issuer has: (i) no apparent racially or ethnically diverse directors; and (ii) not provided a formal, publicly-disclosed written commitment to add at least one racially or ethnically diverse member by the next AGM. ISS may recommend on a case-by-case basis voting against or withholding voting for additional directors at companies that fail to meet this policy over two years or more.

Takeaway

While there has been progress on the representation of women on Canadian boards and in executive positions, the CSA’s Annual Review highlights that there is a long way to go to achieve gender parity in Canadian boardrooms. The Proposed Amendments reflect this fact. If implemented, either approach to revising Form 58-101F1 contemplates broader diversity and corporate governance disclosure rules, which aligns with growing stakeholder expectations, including those of prominent proxy advisory firms, for more diverse and effective boards. The CSA has yet to release the public feedback it received concerning the Proposed Amendments. We will continue to monitor the developments around the Proposed Amendments and their potential implementation.

The author would like to thank Katie Cheung and Dragana Vujovic for their significant contribution to this article.